__economic thinking about sports__

Hayek, applied to terrorism

2004 May 14

by Skip Sauer

David Henderson has a column at Tech Central Station which considers the problem of predicting a terrorist attack. The CIA is necessarily centralized and hierarchical, which limits its ability to gather, interpret, and convey what “Hayek called ‘knowledge of particular circumstances of time and place.'” These limits motivated DARPA to consider running betting markets on terrorist attacks. Leaving aside questions of morality and effectiveness, prices in any market reflect information otherwise hidden from a centralized agency. In concise and modern terms, prices are efficient summary statistics (at least relative to any feasible alternative). This was a key plank in Hayek’s argument that the price system was better than central planning as a means of organizing economic activity.

Henderson points out that two important responses to the 9/11 attacks required decentralized action in light of “particular circumstances of time and place.”

Think of two good things that happened on that horrible September 11. The first was the actions of the heroic passengers on United Flight #93. They got information about the hijackers’ true intentions, not by waiting for some central government announcement, but by acting in the moment to get information from friends and loved ones. They quickly figured out that they would not be on a free trip to Cuba, but on a one-way trip, probably to a high-value target in Washington. So, with little to lose, they acted to protect the lives of strangers in Washington. And they succeeded.

The second good thing was a centralized agency, the FAA, letting its air traffic controllers figure out, in a decentralized way, how to bring a few thousand planes down safely in a few hours. As USA Today reported (August 13, 2002), after 9/11, the FAA started to write a manual for clearing the skies so they could have a more organized plan the next time. Then it stopped. FAA officials realized that they couldn’t plan for the next time because the situation would be different. Instead, the FAA would have to trust that hundreds of air traffic controllers would cooperate the next time as they did so well on that awful day.

These are examples of spontaneous and effective reaction by individuals in difficult circumstances. I find Henderson’s characterization of the Flight 93 passengers apt: “with little to lose, they acted to protect the lives of strangers in Washington.” It helps I think, to be reminded of that. It makes one more optimistic in what is essentially a negative era.

Read Henderson’s entire column, particularly if Hayek’ theory of information is new to you. Hayek’s thinking applied to terrorism is worth considerable reflection, a view I’m sure is shared by many others.